Review Article

Voluntary Insurance for Rapid Growth Bank-led Digital-banking Services: Seeking Attentions for Policy-Design in Peru-economy

Akim Rahman M^1* Ph.D. (OSU, USA), Shaikh Afnan Birahim² MBA (BRACU, Bangladesh)

¹Associate Professor (Econ) and Dean of Faculty of Business Administration, Bangladesh Dr. Momtaz Begum University of Science and Technology (MUST), Bangladesh

²Royal University of Dhaka, Bangladesh

Submission: July 29, 2024; Published: August 13, 2024

*Corresponding author: Akim Rahman M, Associate Professor (Econ) and Dean of Faculty of Business Administration, Bangladesh

How to cite this article: Akim Rahman M, Shaikh Afnan B. Voluntary Insurance for Rapid Growth Bank-led Digital-banking Services: Seeking Attentions for Policy-Design in Peru-economy. Acad J Politics and Public Admin. 2024; 1(5): 555573. DOI:10.19080/ACJPP.2024.01.555573.

Abstract

The Central Reserve Bank of Peru (in Spanish: Banco Central de Reserva del Perú; BCRP) is the Peruvian central bank. It has been speeding up the efforts for digitalization of the national economy and finance for few years now where the innovations of banks & fintech are contributing significantly. Peru is currently considered one of South America’s key emerging markets, with a significant recent history of economic stability. Even so, the Peru is also known for having one of the lowest financial inclusion rates in the region. To undermine the magnitudes of this digital-banking dilemma, the Peruvian government has developed an interoperable mobile money platform, based on a digital electronic wallet for the unbanked, called it the Billetera Móvil (BIM).

However, probable customers are still raising questions about psychological risk-factors, and they avoid using digital-banking, particularly, bank-led digital-banking. To marginalize the dilemma of the progression, attaching Voluntary Insurance (VI) as a new product in digital-banking services can ensure absolute cashless human society soon meeting the 21^st Century challenges. Using this new and increasing value will keep banking-businesses be growing and it can ensure absolute risk-free digital banking in economy country-wise such as Peru. The economic growth trends of Peru, ratify that addition of a new product, obviously a legal one, will contribute improving society beyond just gratification of consumers. Thus, adding this VI can serve as lifeblood in running digital-banking services in Pigouvian-economy.

Keywords: Digital banking, Perceived-risk, Psychological-risk, Voluntary insurance, Cashless, Society

Abbreviations: BCRP: Banco Central de Reserva del Perú; BIM: Billetera Móvil; VI: Voluntary Insurance

Introduction

In today’s business-driven world, people conduct services in rational, competitive, and multifaceted manner where Tech-driven services particularly digital-banking services are contributing significantly. However, in this journey, many factors such as heists and perceived risk-factors including psychological-risk and unpredictable interruptions in any digital transaction are undeniable in economy country-wise where Peru is no exception. On risk-factor issues in e-banking service-market, just recently, the WesBanco Insurance Services, Inc, an insurance agency licensed in many states namely FL, IN, KY, MD, MI, OH, PA, VA, WV and DC in the United States, raised concerns. The WesBanco’s question is: “have you ever received an alert(s) stating, your information has been found on the dark web? If the answer is yes, you are not alone” [1]. These questions or concerns are no exception when it comes facilitation of e-banking services in world economy country-wise [2].

In today’s digital age, some of us might have already been victim(s) of identity theft and the customer i.e., s/he did not or does not know about it. These risks are huge globally. And accordingly, the identity thieves can steel money from customers’ bank & investment accounts and try to obtain tax refunds using a customer’s identity. All these can ruin the customer’s good credit, or even take out loans in the customer’s name. These scenarios are not new in economy country-wise where Pigouvian economy is no exception. This is because the digital-banking transactions are not covered under traditional banking insurance policies or laws in economy country-wise where the Peruvian-economy is no different.

Here in the Pigouvian economy, the Central Reserve Bank of Peru (also known as Banco Central De Reserva del Peru) ensured customers’ account. Accordingly, in completion of any transactions of customers in physical banking, the corresponding bank verifies the customer’s identity etc. relates to the account in Peru economy, like any traditional banking i.e., physical banking system does in economy country-wise. On this aspect, the bank-led digital banking system as well as the mobile-led banking system are not covered by insurance [3]. It has resulted psychological risk-factors in multi-faucets in economy country-wise where Peru economy is no exception.

In this digital-banking journey globally, no digital transaction is ensured by the central bank(s) respectively in economy where Pigouvian economy is no different. It slows the progression of digital-transactions, particularly bank-led digital-transaction where low participation of people mainly in rural and urban areas is the main reason for low transaction-trends of digital-banking. Tackling the growth-trend’s dilemma of e-banking transactions in today’s economy country-wise, Akim Rahman proposed Voluntary Insurance (VI), known as Akim’s Model, as a new product in digital-banking-services [4] in multifaceted literature. It can serve as a guidance to policymakers of Pigouvian-economy for designing effective policies for ensuring absolute risk-free digital-banking services, which can ensure cashless Peruvian-economy soon. Underpinning the Akim’s model, the policy-design & implementation efforts in Peru economy can be instrumental for rightly identifying theft protection plan. It will ensure invaluable peace of mind knowing that customers will have the appropriate security and monitoring approaches in place 24/7.

Accordingly, this study takes on the challenges attracting policymakers’ attentions in Peru-economy for efforts on designing effective policy(s), particularly for introducing the VI policy in e-banking, particularly in bank-led e-banking services, for the greater interest of the Pigouvian.

Why is Peru-economy?

Peru is currently considered one of South America’s key emerging markets, with a significant recent history of economic stability. Even so, the Peru is also known for having one of the lowest financial inclusion rates in the region. To undermine the magnitudes of this digital-banking dilemma, the Peruvian government has developed an interoperable mobile money platform, based on a digital electronic wallet for the unbanked, called it the Billetera Móvil (BIM). Obviously, this development is better than that a decade ago. Today, little over a decade ago, the digital banking penetration as a proportion of GDP in had remained static at around 30% in Peruvian-economy. It was below compared to that of other countries in the region even those countries had lower GDP per capita [3] (Figure 1).

Figure 1 clearly shows that digital banks market in Peru recently experiencing a significant growth trajectory. On customers’ preferences, Peruvian customers are increasingly seeking convenience, efficiency, and accessibility in their banking services [5].

Because of innovation by banks and fintech companies in emerging markets, usages of digital-banking services in Peru have been growing in recent years. A sizable part of the Peruvians is young and urbanized. It has resulted in a shiny economy & high smartphone penetration in lifestyle of Pigouvian-society there. But many people are yet to have access to banking services (International Finance 2023). As reported by the International Finance (International Finance, 2023), Peru currently is the world’s fastest-growing regional market for digital wallets i.e., bank-led digital-banking, with forecasting to increase by more than three hundred percent between 2023 and 2425. So, adding the VI as a new product as proposed in the digital services can make the Peruvian society cashless soon and make its economy shinier. Thus, the rest of world will follow in its footsteps where banks will make sure their full range of services are available to its customers. With this new effort in policy implementation, in recent years the Peru-economy is enjoying a sizable growth trajectory, mirroring a global trend towards digitalization in the banking sector (Reference). In the month of August of 2019, Peruvians sent close to PEN100 billion a month over virtual channels, in around 25 million transactions. On the same month in year 2013, it was around PEN 27 only [3].

However, Figure 1 clearly shows that the trends of bank-led digital-transactions are still shaky where perceived risk-factors dominate probable customers’ decisions not to use it. Most of these probable customers reside in rural areas in Peru. The Fig 1 further shows that the recent efforts, particularly the mobile wallet - the BIM in economy have been contributing slowly to the progression of digital trends in Peru economy. Here the transaction-trends of mobile-led banking are growing faster than that of bank-led digital-banking [5] where banks struggle with surviving challenges - more banking activities are driving towards physical banking-activities. Accordingly, in mobile-led bank market, Peru is experiencing a significant growth trajectory, mirroring a global trend towards digitalization in the banking sector where customers are increasingly seeking convenience, efficiency, and accessibility in secured banking services.

The Goal of the Current Effort

The goal of this research effort is to bring the issue to bank-management’s attentions so that the proposed Voluntary Insurance (VI) becomes a product in digital-banking operation in Peru economy. It raises questions: how can this new VI product be instrumental in the banking sector and to Pigouvian-society? Why is it important? Why now?

Answering the questions posed, it is palatable saying that shifting risks in multi-faucets including the perceived risk-factors away from digital-banking services will directly help both the banking sector and the customers. Also, it can attract new or probable customers who were on the brink using digital banking services but just felt it was risky. The model, also known as Akim’s model [2,6] can ease the customers with incentives for increasing number of transactions in usages of digital services while keeping best utility of it. In this promotional operation, banks can offer incentives based on certain numbers of digital transactions where banks will be able to marginalize its operating cost that has smaller number of bank-employees without detreating the quality of services. With this win-win prospect, the implementation of the VI policy will facilitate a new product in today’s Pigouvian business-driven world where time to time not having any new legal product(s) in any ongoing business may make the business to be slow down in operation and eventually dies down.

Thus, adding the VI as a new product can be advantageous or satisfactory to all parties involved where supporters and authority(s) roles are vital for asserting efforts for the benefit of the Pigouvian no matter whether they reside in city, urban or in rural areas in the country and beyond.

All these together raise question(s): What is Voluntary Insurance?

Voluntary Insurance: What is it? How should it work in digital-banking services?

What is Voluntary Insurance?

Addressing the issues that undermine bank-led digital-banking progression in Peru economy, the proposed VI product of digital-banking can be helpful [7,8]. In digital-banking market, the financial sector can introduce it as a product in operation where the bank or any third-party can collect premium of insurance by ensuring secured services [7].

How should it work in digital-banking services?

The way it would work in digital-banking services is that customer’s participation will be voluntary. Insurance will be attached to a customer’s account, if and only if the customer wants it for having secure digital services. Since the proposed VI program will be designed as a way of transferring the risk away from its premium-payers, it will ensure premium-payers with a sense of certainty. Based on terms & conditions, here the premium receivers will take extra measures for ensuring risk-free bank-led digital-banking services in the Pigouvian economy. For example, in practice, ATM Cards or Credit Cards can be protected by setting two identifications such as password and a finger-scan. Suppose a customer in banking services wants to use ATM card. Now accessing the customer’s account, the customer will have to use two identifications namely own setup password and previously chosen finger-scan say the customer’s thump or forefinger scan. Here finger scans in addition to password can be connected to the ATM system, which will make the digital banking enhanced secured. Overcoming the risk of heist or hacker’s access to bank accounts or risk-factor caused by other disrupted acts, which cause a customer’s frustration, under the proposal, similar own set up identifications can be used. In global banking scenarios such as remittances, the program can ensure risk-free digital banking services. Since a customer’s psychological risk-factor undermines the progression of digital-banking in Pigouvian, the proposed VI product can overcome this dilemma. Furthermore, being a new product in the market, it can contribute to the economy and can cashless society soon.

Theoretical Justification of the VI Option in Bank-led Digital Services in Peru economy

It is well recognized that perceived-risk factor plays an influential role in setting the stage for the proposal, the VI Option in digital-banking services [8]. It is palatable assuming that digital-banking-customers are risk-averse. In other words, digital-banking customers prefer certainty to uncertainty when it comes to banking. Fig. 2 illustrates the risk preferences of a risk-averse banking-customer in the Pigouvian-economy.

In an uncertain world, a customer’s actual utility is what the customer receives from digital banking-services will never fall on the TU (X) line but rather on the chord (the bold line). The X-g stands for a service outcome and the customer here may use a certain level of service X while X-f stands for a negative outcome in which the customer may use less of service X. If there is a level of uncertainty, a customer may not use X-g units of service X where X stands for bank-led digital banking services.

On utility issues, the utility this customer receives will lie somewhere on the chord (the bold line) in (Figure 2). The chord here stands for the expected utility (EU) of using service VI, which lies in the concavity of the curve. This is because it is the average probability that the customer will use service VI or not. As a result, an individual will never receive TU (X-a) but rather the individual will receive EU (X-a).

How can it be instrumental to the Pigouvian economy?

It is well recognized in today’s business-driven world that any legal new product such as the VI can be the lifeblood of business, companies, and societies. It can ease a few ways such as: ensured new value for customers, improved society, and continued existence of the company in competitive market.

Having the VI in place can ensure risk-free e-banking services in the Pigouvian economy. It can guarantee enhanced self-service-banking transactions in Peru economy. This can be beneficial to customers because it can ensure savings in the form of cost and time. As a result, customers and probable customers will flock to it when they use banking services. By extra advancement such as adopting the VI production in today’s ICT usages, the banking sector can be further competent, cutting down its operating costs, meeting customers’ needs and keeping up with global changes. Eventually the service provider will be able to cut down fees of banking-services including customer’s yearly fees against each account.

With this win-win prospects for producers and users of the VI product in digital-banking and for the economy of a nation can contribute significantly to today’s slow-down economy. To sail through tough competition and to sustain revenues, financial sector of economy country-wise such as Peru is engaging more than that of other kinds of bank on adoption of IT in its operation (McKinsey & Company, 2021). However, it has failed reaching out to a major part of customers when it comes digital banking in countries including Peru.

What can the VI product of digital-banking service-market do in Peru-economy?

As of today, the proposed VI product is well recognized in literature, particularly, in literature of digital-banking services globally. However, our efforts on Google navigation shows that no economy has yet facilitated for it in e-banking services.

Since the perceived-risk and psychological risk-factors are undeniable in digital-banking services no matter what economy or country we talk about, and since the prospects of the VI proposal are undeniable, Peruvians’ efforts introducing it can a be a history. Once the policy-practitioners and the bank-management here recognize the importance of the proposed VI product under Akim’s model and introduce digital banking-provisions that authorize the VI as a new product, it may spread from bankers to customers in Peru-economy and beyond.

This process of life cycle of the VI product can be described using the S-curve. This S-curve will map the growth of revenue or productivity against time. In the early stage of this journey, growth will be slow as the new product sets up itself. At some point, customers will begin to demand the VI product in the digital-banking service market. In this market having a rebate policy on the number of transactions can be further instrumental. So, the product growth trends will increase rapidly. These new incremental changes to the product will allow the growth to continue. Toward the end of its life cycle, the growth will slow down and may even begin to decline where no amount of new investment in that product will yield a normal rate of return. However, it will set up a secured bank-led e-banking through bankers who introduce this new product, which can present a Cashless Pigouvian-society soon.

This successive S-curve will come along to replace traditional banking and will continue to drive growth trends upward where the VI will have “product life” i.e.,

i. A start-up phase .

ii. A rapid increase in revenue and

iii. Eventual decline. But it will never get off the bottom of the curve and will never produce normal returns. In this development, it will play vital roles presenting a secure bank-led e-banking service, which is needed to attract today’s probable customers (Figure 3).

VI in place can ensure risk-free E-banking, which can guarantee elevated self-service-banking activities in any economy. This can be beneficial to customers because it can ensure savings in the form of cost and time. Thus, customers will flock to it when they use banking services. By extra advancement of ICT usages, the banking sector can be further competent, cutting down its operating costs, meeting customers’ needs and keeping up with global changes.

With this win-win setting for producer & user of the product in digital-banking, the financial sector of Peru-economy is no exception. It is well recognized that to sail through tough competition and to sustain revenues, the financial sector in economy country-wise is engaging more than that of other kinds of bank on adoption of IT in its operation. In this reality the financial sector of Peru-economy is no exception. However, it has failed reaching out to a major part of probable customers in case of digital banking service in countries including Greece.

Conclusion

Now adopting the policies of Voluntary Insurance as a new product in digital-banking services can be an impetus meeting today’s digital-banking demand, which can ensure higher growth trends of digital banking-services use country-wise such as Peru. The economic growth trends of Peru ratify that addition of a new legal product will improve society’s wellness in daily lifestyle beyond just gratification of consumers.

It will facilitate the society to be well-served by the continuance of these banking companies in multi-faucets such as employment of individuals who work there or are consumers, and support for society at-large in the form of taxation and charitable giving. But companies and civilizations have little choice but to grow and improve if they want to move from survival to thriving. So, adding any new products and services, obviously legal ones, in banking services or in businesses will ensure supplying the mechanism for this growth and improvement in Pigouvian society.

So, the pivotal question is whether the bank-management and policy-practitioners of Peru plays role for better-ness of its modern-society when it comes digital-banking services. The answer to the question posed is, YES, where efforts of policymakers and bank-management in Pigouvian-economy can contribute significantly for the better-ness of its economy as well as for its society there. Eventually, it can ensure cashless society sooner than further delays.

References

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